By Stephanie Bruno

Most people view $1 million as a benchmark for success. They think once they have $1 million in the bank, they can retire early, buy a nice car, take lavish vacations, and live a life of pure bliss. Especially if you are first generation wealth, this may be more money than anyone in your family has ever imagined. 

While $1 million used to be the gold standard, it doesn’t guarantee success anymore. Today we’ll go over the top 3 factors that have limited the purchasing power of $1 million today (and what you can do to make your money last.)

Inflation

Inflation is arguably the #1 factor to account for when planning for retirement. It’s nicknamed “the silent retirement killer” because it’s hard to see its effects from year to year. 

The cost of living has historically gone up 3% every year. (1) If this pace keeps up, $1 million today will be worth $543,794 in 20 years. (2) Put another way, if you bought a car in 2019 for $30,000, that same car would cost $54,183 in 2039 and $72,818 in 2049. These numbers seem astronomical today, but this will likely be a reality in retirement. 

What You Can Do: 

Inflation erodes the value of your money over time. Start by calculating how much the rate of inflation will go up between now and the day you retire. Next, estimate how much the cost of living will increase over the course of your retirement. 

Remember, retirement is a starting point for a new chapter in life (a chapter that will likely span decades). Estimate how much inflation will increase over the course of your entire life to determine how much money you need in retirement. 

Healthcare Costs

Whether you are stepping away from work to start an encore career or retiring early, you need to bridge your health insurance until you can sign up for Medicare. This may be continuing coverage through COBRA or signing up for an individual policy and it will be a significant expense. Once you reach 65, you can sign up for Medicare, but this often isn’t enough to cover chronic healthcare issues. Also, did you know that routine medical services such as dental, basic vision, over-the-counter medication, and long-term care aren’t covered by Medicare? (3) It’s true.

The average couple needs anywhere from $174,000 to $296,000 in savings to cover healthcare expenses in retirement (more if you are retiring early), according to the Employee Benefits Research Institute. (4) Are you prepared to pay these costs?  

What You Can Do: 

Build a savings buffer over your regular retirement account to cover these expenses. Putting this contingency in place will give you peace of mind knowing you’re taken care of if something ever happens. 

Lifestyle

If you are starting an encore career, you’ll need funds to help start your new passion pursuit. If you are retiring, it’s easy to think that you’ll cut back on spending once you’re no longer working.  The truth is, almost 40% of retirees overspend in retirement. (5) Why? Because many people kick off retirement by doing what they never got to do while working—traveling the world, picking up a new hobby, remodeling the house, and so on. 

What You Can Do 

Stepping away from traditional work is a major lifestyle change. If you want to make sure you have a stream of income you won’t outlive, consider creating a retirement budget. Include line items for things such as vacations and hobbies, but make sure you have enough money to cover it before you follow through. Staying flexible in retirement is key to stretching your wealth as far as possible. If you decide on an encore career, this can help bridge the gap. 

How We Help

One million dollars may not be enough to retire comfortably, but it’s still a good milestone to reach as you journey toward financial security. Taking steps today to account for inflation, healthcare costs, and lifestyle changes is a great way to set yourself up for the retirement of your dreams. At Sea to Peak Financial Advisors, we specialize in creating encore career and retirement plans to help you grow and protect your wealth. If you’d like to see if we can add value to your financial life, and you have 15 minutes free, let’s schedule a call. You can also email us at info@seatopeakadvisors.com.

About Stephanie

Stephanie Bruno is the founder of Sea to Peak Financial Advisors, an independent, fee-only financial advisory firm helping executives bring meaning to their money. Stephanie earned a bachelor’s degree in finance from the University of New Orleans and a bachelor’s degree in English from Ohio State University and holds the Certified Financial Planner® (CFP®), Accredited Investment Fiduciary® (AIF), Certified Private Wealth Advisor® (CPWA®), and Retirement Manager AdvisorSM (RMA®) designations. She splits her time between Denver and Seattle, where her husband, Steve, serves as the head of Westside School. Outside of the office, Stephanie honors her mom by serving as board chair of the Women’s Foundation of Colorado. Stephanie and Steve have two smart and accomplished daughters, Emma and Leah, and Rio, the thirteen year-old Shiba Inu. To learn more about Stephanie, connect with her on LinkedIn.

Stephanie Bruno is an Investment Advisor Representative of Dynamic Wealth Advisors dba Sea To Peak Financial Advisors. All advisory services offered through Dynamic Wealth Advisors.

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(1) https://www.usinflationcalculator.com/inflation/historical-inflation-rates/

(2) https://smartasset.com/investing/inflation-calculator#V28rcyliLO

(3) https://www.cnbc.com/2019/04/02/health-care-costs-for-retirees-climb-to-285000.html

(4) https://www.ebri.org/docs/default-source/ebri-issue-brief/ebri_ib_460_medicare-8oct18.pdf?sfvrsn=5c1b3e2f_2

(5) https://www.fa-mag.com/news/many-retirees-overspend-42184.html

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